If you’ve grown your business and created a competitive formula to make your company competitive, you may have concerns that your former employees will start their own business using the methods you’ve developed. To avoid this worry, you can have your employees sign non-compete agreements before they begin work for you as a means of protecting your methods and preventing the potential risk of future problems.
The problem with these agreements is that many companies do not understand that common mistakes made with non-compete agreements can render them unenforceable. You must be aware of these issues to prevent yourself and your business from running into unenforceable situations and avoid challenging legal battles in the future.
These are some of the common reasons non-compete agreements are unenforced in the courts:
Restrictions on Competition are too Long or the Geographic scope is too Wide
Courts can refuse to enforce a non-compete agreement if it restricts employees from competing for an unreasonable length of time. For example, if you restrict a former employee for a period in excess of 18-24 months, the courts are likely to refuse to enforce the agreement. For most agreements, a time period of up to 18 months (and in some cases, two years) is acceptable and enforceable.
Also, the geographic scope needs to be reasonable. If you restrict an employee to not working anywhere in the United States, the non-compete agreement is likely unenforceable (although not in all cases).
Non-Compete Agreement Has a One-Size Fits All Approach
Your non-compete agreement should fit your business. It should not be a replica of another business’ agreement as your needs may be different. The same is true of your employees, as some agreements may fit for a particular employee position, but not necessarily for all positions.
Some companies neglect this idea and create their non-compete agreements from those used in other industries. Some businesses even go on the internet and find one there to create their document. These methods are considered one-size-fits-all, which may have durational or geographic restrictions that are not well-suited to your business and make them unenforceable. Your agreement needs to have specific considerations for your business’ circumstances and needs.
Outdated Non-Compete Agreements Not Following the Laws
Laws and circumstances that govern non-compete agreements change over time, so you must keep yours up to date to stay following the laws of your state. If you do not update your agreements, or review them periodically, you risk them becoming less irrelevant to your company’s needs and perhaps unenforceable as well.
A lot of things can change in a business’ structure, such as key customers, techniques, information gathered and stored, and even essential employees. Just as these things change, so should your non-compete agreement.
Not Having a Non-Compete Agreement
Many businesses fail to create non-compete agreements for a variety of reasons. It may be that they were too busy to take the time out to create an agreement, and sometimes owners just feel they can trust their employees and they don’t need one. There are also business owners who don’t realize the information they have is valuable and worth protecting.
One of the biggest reasons for businesses not creating these agreements is not realizing the potential for losing valuable employees to a competing business. Whatever the reason is for not having these agreements, it is important to know how important they are in protecting your business, your customer’s confidential information, and unfair competition.
No Consideration Was Given in Non-Compete Agreement
A common reason for a non-compete agreement to be declared unenforceable is the employer did not obtain an agreement from an employee already hired and did not provide them something of value in return. Typically, these agreements are not enforceable as the employer did not offer ‘additional consideration.’
There has to be a consideration, or in legal terms, an exchange of value between the employee and their employer. With a new hire, the consideration is typically they will be offered and given a position if they sign the agreement. With existing employees there must be additional consideration made or the agreement is unenforceable. The consideration could be money, new benefits, new job responsibilities, or others. The consideration must give the employee a real benefit that they would otherwise not be entitled to receive. However, in Florida, continued employment is valuable consideration recognized by the Courts.
Who to Contact About Non-Compete Agreement
Danz Law will provide you knowledgeable, experienced representation for your business. Working across South Florida we have gained a wealth of experience in business management and are ready to help entrepreneurs and business managers with key aspects of the law. If you have questions on how to create your non-compete agreement, contact our office and set up an appointment today.